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Scorecard: 2008 Beltway Stock Bets

2008-12-10T05:44:00.000-08:00

WASHINGTON, D.C. -- In 2008, this author wrote 20 stories serving up Washington-themed stock picks. The proposition behind them was that companies and their investors often benefit from activity inside the Beltway, be it procurement, favorable legislation and regulation or even just political developments.

This approach worked out well enough in 2006 and 2007. Not this year.

On average, stocks highlighted in our 2008 stories show a total return of -26%, using prices from the date of publication through market close on Dec. 8. Small consolation: That's three points better, leaving aside transaction costs, than the S&P 500 return of -29% during equivalent time periods.

Full story at Forbes.com

Beltway Bet: iRobot

2008-11-20T07:08:00.001-08:00

Since an initial public offering three years ago, iRobot's stock price has steadily dropped. The Burlington, Mass., company, whose machines can vacuum your floor or help soldiers sniff out roadside bombs, went public at $24. Recent price: $9.

By certain metrics, the stock looks tempting. Its latest 12-month price-to-earnings ratio is a modest 15, while the company's enterprise value, market capitalization plus net debt, stands at just 0.6 times its 12-month revenue of $316 million. The latter multiple is in line with a big defense contractor like Lockheed Martin and well below that of a comparable niche technology company like AeroVironment, whose enterprise-value-to-sales multiple is 2.5.

Full story at Forbes.com

One Roll of The Dice

2008-11-19T16:42:00.000-08:00

For the 12 months ended Oct. 31, the S&P 500 lost 37%. Happily for the five bears in our annual equities contest, their picks did considerably worse. In October 2007 we challenged them each to name one stock that would trail the S&P over a one-year period. On average their stocks fell 61%. All five accepted our customary invitation to the winners to play again another year.

Our panel's 12 bulls scraped by. Only five of their picks beat the market, and only two of those showed gains. As a group they declined 37%, same as the S&P 500.
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Richard Jandrain, head of growth investing at Fort Washington Investment Advisors, leads the bulls. A year ago he liked the look of Pharmion, a developer of cancer treatments. So did Celgene (nasdaq: CELG - news - people ), which acquired Pharmion last March and helped Jandrain to a 50% gain.

Full story at Forbes.com

Value Stock In Pictures: Alcoa

2008-11-10T16:48:00.000-08:00

Alcoa, one of the world's biggest aluminum producers, might tempt a contrarian. Here's a closer look.

Slide show at Forbes.com

Defense Stocks At The Turning Point

2008-11-06T09:15:00.000-08:00

WASHINGTON, D.C. - With the election of Barack Obama, uncertainty hangs over U.S. defense companies. Michael Lewis, equity analyst at BB&T Capital Markets, isn't ready to make a call on how things will shape up for this sector in the Obama administration's first six months.

"It's very difficult to determine until we actually begin to see directional changes in funding or contracts actually starting to be pulled to the side," he says. "Longer term, I do think there will be some type of sea change with regard to how dollars are spent."

Fittingly, U.S. aerospace and defense stocks didn't dodge Wednesday's post-election market drop. The S&P 500's aerospace and defense constituents fell 5% yesterday, in line with the broader index's decline.

Full story at Forbes.com

Green Power

2008-10-29T19:21:00.000-07:00

In early 2000 the San Diego County Water Authority flipped the switch on the Rancho Penasquitos Pressure Control & Hydroelectric Facility. For the $22 million project, engineering firm Black & Veatch designed an intricate series of computer-controlled connections that jacked up the pressure on water moving through a 22-mile pipeline. Result: swifter water flow for the authority and enough excess hydraulic pressure to run a 4.5-megawatt turbine. That provides sufficient juice both to power the Rancho Penasquitos system and to net the authority $1 million a year in emissions-free electricity sales back to its energy utility.

Such energy-water twofers represent an emerging sweet spot for Black & Veatch, ranked 126 on our Private Companies list. This 93-year-old engineering firm has made a large part of its living from big, carbon-spewing power plants. Now it is being reborn as a green company. It will help its clients cut emissions.

Power-related projects accounted for half of the Kansas City outfit's $3.2 billion revenue last year. Water made up 38%. "This nexus of energy and water is a big deal," says Chief Executive Len C. Rodman, 59, who likes to see fuel, power and sustainability as one large-scale piece. "It's going to be a bigger deal."

Full story at Forbes.com

Labor's Green Energy Elevator Pitch

2008-10-01T18:11:00.001-07:00

Washington, D.C.--As the notion of the "green economy" has come into vogue over the last few years, organized labor licked its chops. Take the Apollo Alliance, for example. The labor-sponsored group launched in 2004 with claims that a shift to renewable energy could create 3.3 million jobs, presumably unionized, in the U.S.

At a mid-September forum in Washington, D.C., organized by the Cleantech Group, two labor reps made their case to the venture financiers now putting money into newfangled energy technology companies. They dangled labor's political muscle, $5 trillion in union pension assets and an emphasis on flexibility and partnership.

"Partnership is the most important thing that we want to get across to you today," said Christopher Chafe, executive director of Change to Win, a federation of seven unions with 6 million members. Chafe seasoned his remarks with words like "dialogue" and "relationships"--he used some variation of "partner" at least a dozen times.

Full story at Forbes.com

$488 Billion? That'll Do, For Now

2008-10-01T06:22:00.000-07:00

Tuesday, President Bush signed into law a giant spending bill that, among other things, appropriated $488 billion for the U.S. Department of Defense for 2009. The defense spending sum fell $4 billion short of the president's budget request but represented a 6% increase over 2008 funding levels.

"Not bad," says Cord Sterling, vice president for legislative affairs with the Aerospace Industries Association (AIA), of the $488 billion. "That's a pretty good amount of money."

But pretty good needs to be a lot better, according to the AIA. The Rosslyn, Va., trade group, with a $10 million budget and 60 staffers, is pushing the industry position that the incoming administration and Congress must set defense spending at a minimum of 4% of gross domestic product, not including supplemental wartime spending bills.

The $488 billion in defense appropriations amounts to just 3.5% of U.S. GDP.

Full story at Forbes.com

Mid-Cap Beltway Bets

2008-09-25T20:48:00.000-07:00

As part of our Washington coverage on Forbes.com, we take a keen interest in companies doing significant business either directly with the U.S. federal government or with the big contractors catering to it.

One reason: investment opportunity. Sometimes it pays to make a bet on a company with products or services that have struck have the fancy of a huge, sophisticated and deep-pocketed customer: Uncle Sam.

We've used our annual list of the 100 Best Mid-Cap stocks to test the proposition, with good recent results. The seven stocks we highlighted in this 2007 story show a 12-month total return of 2%, through our price date of market's close on Sept. 18, versus a 19% drop (total return) for the S&P 500.

Full story at Forbes.com

Best Countries For Business: Stock Bets

2008-09-10T10:12:00.000-07:00

Washington, D.C. - The International Finance Corporation, the private sector arm of the World Bank, releases its annual "Doing Business" report this week. The report, based on a survey of 6,700 business experts across the globe, ranks 181 countries by their hospitality to private enterprise.

The IFC describes its report--which looks at criteria such as enforcement of contracts, taxes and cross-border trade--as "a kind of cholesterol test for the regulatory environment."

By the IFC's tally, Azerbaijan, consistent with reform-happy Eastern Europe and Central Asia, has made the biggest improvement to its business climate recently. Meanwhile, 28 African countries have taken steps to make doing business easier, a number the IFC calls a record.

For the last several years, we've used "Doing Business" as a tool for stock pickers. The gist: International investors should stick with companies in countries with the most business-friendly regulatory frameworks. We start with the 30 countries taking the top spots on the IFC's "Ease of Doing Business" rankings. You can find the full list here.From there we look for publicly traded companies from those countries.

Full story at Forbes.com

Pentagon Worries About Chinese Chips

2008-09-04T13:39:00.000-07:00

Washington, D.C. - At a conference in Washington, D.C., this week, a Department of Defense official sounded a startling alarm.

"The defense community is critically reliant on a technology that obsoletes itself every 18 months, is made in unsecure locations and over which we have absolutely no market share influence," said Ted J. Glum, director of the DoD's Defense Microelectronics Activity unit.

"Other than that," he cracked, "we're good."

Glum addressed his comments to a crowd of defense officials and industry execs gathered for the 2008 Common Defense Conference, or ComDef, an internationally focused event held annually in Washington.

This year, threats to computer networks were front and center. But Glum underscored that the Pentagon has hardware headaches too, particularly when it comes to microprocessors. Ninety percent of the department's obsolescence problems, he said, are related to electronics.

Full story at Forbes.com

Beltway Bet: NICE Systems

2008-08-28T06:16:00.000-07:00

The last 10 years have been quite a ride for shareholders in Israel's NICE Systems, a developer of data-analysis technology for use in security and customer service. The Nasdaq-listed stock jumped to a tech-boom high of $50 in March 2000, only to sink to $3 per share a year and a half later. Since then, it has gradually recovered and now trades at $31.

Equity analyst Daniel Ives of Arlington, Va.'s Friedman, Billings, Ramsey & Co., believes NICE Systems' (nasdaq: NICE) stock will continue to climb back toward its 2000 peak.

"They're a well-run company," he says. "The stock is undervalued based on growth." (Note: Friedman, Billings, Ramsey makes a market in NICE Systems shares but does no banking work for the company).

One reason for his optimism: the potential in NICE's security and surveillance business, which accounted for 24% of its $517 million in sales for the year ended December 2007. Ives thinks NICE can build on its big wins with government customers like the Federal Aviation Administration and the city of New York.

Full story at Forbes.com

Solar Entrepreneur To Feds: Step It Up

2008-08-20T04:19:00.000-07:00

At the upcoming U.S. political conventions, it's a safe bet you'll hear more than a little bluster from Democratic and Republican parties about the need for federal "investment"--don't call it a subsidy--in renewable energy technologies such as solar, wind and so on.

A lot of hot air? It won't be for Frank van Mierlo, co-founder and president of Lexington, Mass.-based 1366 Technologies. The young company has raised $12.4 million in venture money in support of its mission to make solar power cost-competitive with coal by 2012.

Key to that mission: a more vigorous role for the U.S. government. "There is no way that we can change the energy resources in our society without real leadership from the government," says van Mierlo. "The current administration, it's sad to say, has not provided that leadership."

Full story at Forbes.com

Government Tech Stocks: Don't Fear November

2008-08-14T08:24:00.000-07:00

Washington D.C. - U.S. Air Force Captain turned stock analyst, Raymond James' Brian Gesuale keeps tabs on 14 companies selling technology or technology services to government agencies--military and civilian. One issue he's not too concerned about these days: McCain versus Obama.

"The general message we're putting out there is, 'Don't be afraid of politics and the election this year,' " he says.

That advice isn't for every defense investor, however. Gesuale thinks stocks of defense giants like Lockheed Martin (nyse: LMT - news - people ) or Northrop Grumman (nyse: NOC - news - people ), as well as companies who sell war "consumables" (ammunition and so on), could well get knocked around by electoral outcomes.

In contrast, Gesuale suggests the stocks he covers--small- and mid-cap technology concerns--likely stand only to benefit from a changing of the political guard. One reason is that these smaller players tend to suffer disproportionately from budget uncertainties. When Congress and the Bush administration battle over military spending priorities, as they did over supplemental war funding earlier this summer, the odds rise that money for new technology will get squeezed or cut.

Full story at Forbes.com

Natural Gas: Booming In The Beltway

2008-08-01T06:37:00.000-07:00

Washington, D.C. - The natural gas industry has been turning up the heat this summer in the nation's capital. Advocates are explaining to lawmakers that while oil is expensive, scarce and imported, there's enough natural gas in the U.S. supply to last more than 100 years.

One example: Aubrey McClendon, Forbes 400 member and chief executive of Chesapeake Energy (nyse: CHK - news - people ), the second-largest independent producer of natural gas in the country. Speaking at a Congress hearing Wednesday, he sounded more like someone in the business of political snake oil.

"Imagine if tomorrow you could announce a new energy plan that would in one stroke cut your constituent's gasoline bill in half, reduce our oil imports, improve our air quality, enhance national security, strengthen the dollar, reduce greenhouse gas emissions and create tens of thousands of new jobs in the U.S," McClendon said. "I believe your upcoming reelection chances would be even higher than they already are."

Smooth. McClendon and other panelists at the hearing, convened by the House Select Committee on Energy Independence and Global Warming, want Congress to know that natural gas can have a more prominent role in America's energy future.

Several lawmakers seemed convinced, describing natural gas as "a precious resource," a bridge to a renewable energy future--and a replacement for coal.

Full story at Forbes.com

Political Risk Watch: Nanotechnology

2008-07-24T10:28:00.000-07:00

In print and online, Forbes has chronicled the amazing potential of nanotechnology, or the ability to see, manipulate and manufacture things that are as small as one-billionth of a meter.

At a Wednesday event in Washington, D.C., a panel of experts didn't play down that potential.

"The future of nanotechnology is extraordinary," said J. Clarence Davies, a former Environmental Protection Agency (EPA) official who now serves as a senior adviser to the Project on Emerging Nanotechnologies at the Woodrow Wilson Center in Washington. "When you start crossing it with synthetic biology and artificial intelligence and so on, science fiction looks very pale in comparison."

Lately, however, the market has not shared in the enthusiasm, at least when it comes to pure-play nanotechnology stocks. In the table below, we show four that have dropped more than 45% from their respective 52-week highs.

Uncertainty stalks these companies. Altair Nanotechnologies (nasdaq: ALTI - news - people ), Nanophase Technologies (nasdaq: NANX - news - people ) and Nanosphere (nasdaq: NSPH - news - people ) have never turned a profit, and security analysts project that all will lose money for their current and upcoming fiscal years.

Another source of uncertainty, although not necessarily a negative, is regulation. Thicker red tape surrounding nanotech is practically inevitable, say Davies and colleagues, who have released a 28-page regulatory agenda for the next administration.

Full story at Forbes.com

Report: Deal Making Will Stay Aloft In Aerospace

2008-07-16T13:39:00.000-07:00

Washington, D.C. - Over the past 12 months, valuations have plunged in the aerospace and defense sector. Last July, for example, U.S. aerospace and defense stocks traded at an average 23 times trailing-12-month earnings, according to an aggregate compiled by FactSet Research Systems. The average price-to-earnings ratio presently: 13.

Despite the compression in the average earnings multiple, it is not easy to be bullish here, as business has turned nasty for commercial aerospace customers. Tuesday, the Air Transport Association, the airlines’ trade group, announced that first-quarter expenses for airlines grew at the fastest pace since 1980. The biggest culprit: a 51% year-over-year increase in the average price of aviation fuel.

Beyond pure contrarianism, do bargain hunters have any reason to jump into aerospace and defense? One may be consolidation. As some investors retreat from these companies, corporate deal makers remain interested, according to a report released Monday by PricewaterhouseCoopers. The accounting firm says the sector saw $31 billion worth of aerospace and defense acquisition activity worldwide in 2007, the most since a peak of $46 billion in 2000, and forecasts significant merger and acquisition activity for the next one to two years.

Full story at Forbes.com

Defensive Defense Stock: Saab

2008-07-02T16:29:00.002-07:00

With rising energy prices threatening commercial aviation, aerospace and defense stocks haven't fared well in the global equities downturn. Year-to-date, according to an index tallied by FactSet Research Systems, the stocks of aerospace and defense companies worldwide have dropped 19% in dollar terms, versus an aggregate decline of 14% across all sectors globally.

At least one aerospace and defense stock, however, has bucked the year-to-date trend: Saab, the Swedish maker of military aircraft, aviation components and command and control systems. The share price for the Stockholm-headquartered company, not to be confused with the auto brand now owned by General Motors (nyse: GM - news - people ), is up 17% so far in 2008.

Even with the uptick, Saab still looks cheap. Its Stockholm-listed shares sell for just 10 times the average analyst estimate for 2009 earnings per share. Contrast that with equivalent multiples of 12 for Lockheed Martin (nyse: LMT - news - people ) and 13 for Raytheon (nyse: RTN - news - people ). Those interested in international investing should put Saab on their radar screen.

"In this turbulent time, we believe investors will appreciate this type of company more and more," says Mikael Laséen, a Stockholm-based analyst at Kaupthing Bank, speaking of Saab. "It is of course a political risk, but clearly you don't have to worry about the business cycle and consumer spending that much."

Full story at Forbes.com

Seven Cheap Global Stock Picks

2008-07-02T16:29:00.001-07:00

Raymond Mills can't talk about the job he held before signing on to T. Rowe Price. Literally. With a doctorate in aerospace engineering from Stanford University, he worked on some sort of national security-related program until a decade ago. "It was classified," is all he'll say.

Less spooky is the way the manager of T. Rowe Price's $1.5 billion (assets) Overseas Stock Fund picks stocks. Some of Mills' selections are household names. Others are practically unpronounceable. All, in his view, offer above-average earnings growth--thanks to superior products, market dominance or exposure to fast-growing economies--at reasonable prices. For investors, that adds up to a way to ride out and profit from the market's current volatility.

Toyota Motor (nyse: TM - news - people ), a Mills favorite, is a good example. "Honda and Toyota are leaders in hybrid technology and fuel efficiency," he says. "They're going to be winners over time."

Long-term promise aside, Toyota shares are down 20% from a 52-week high amid the malaise in the global auto business. That has left the stock selling at nine times latest-12-month earnings, versus a five-year average of 13.

"Maybe we don't think it's going to be a great stock for the next year," he says of many of the shares he tucks away, "but we think it's going to be a great story over the next two to three or five years."

Full story at Forbes.com

Tough Times Spawn Opportunities For Washington VCs

2008-06-18T06:17:00.001-07:00

Washington, D.C. - The U.S. venture capital business has been slogging through a rough patch. The first quarter of 2008, according to the National Venture Capital Association, saw just five initial public offerings by venture-backed start-ups. Meanwhile, just 56 venture-backed firms were sold or merged, down from 82 and 104, respectively, in the first quarters of 2007 and 2006.

The principals of RedShift Ventures, a Washington, D.C.-area venture capital firm, don't gloss over the problems. "It was just brutal," says general partner Mark Frantz, of the first quarter. "I don't see a lot of indicators on the horizon that are going to change that," adds Richard Harris, another general partner and RedShift's founder.

But from RedShift's view, the tough outlook for making money on the back end hasn't dampened entrepreneurial activity on the front. "We see a tremendous amount of deal flow," says Harris.

Paradoxically, Harris suggests one reason for all this opportunity is corporate skimping on research and development. "In this economic environment," explains Harris, "large companies seem less interested in funding cutting-edge research than they are just shoring up their core businesses."

Full story at Forbes.com

Hybrid Trucks Drive Through The 'Valley of Death'

2008-06-11T12:41:00.001-07:00

As we noted recently, use of hybrid engine technology in commercial trucks remains very much in its infancy. Expect that infancy to last a while, even with diesel prices soaring. A hybrid big rig costs 50% more than a conventional one, too rich a premium for most consumers. The federal government, while interested in promoting more efficient trucks, isn't a likely savior here.

All this was up for discussion at a Tuesday Capitol Hill hearing, held by the House Committee on Science and Technology's Subcommittee on Energy and the Environment. "The truck industry is due for a major technological shift, said Rep. Nick Lampson (D-Texas), the subcommittee's chair, "but advances in this sector don't come easily."

Full story at Forbes.com

Aerospace's Bullish Hawk

2008-06-03T06:23:00.000-07:00

Thirty years ago, before he jumped into securities analysis, Richard Whittington paid his dues working in the bowels of the U.S. Department of Defense and the Rand Corp. (a think tank catering mostly to the U.S. government). He ran budget analyses and worked over different Cold War scenarios, like what kind of troop levels were sufficient to block a Soviet thrust into Western Europe.

Now at JSA Research, an independent equity research boutique focused on aerospace and defense, Whittington has a worldview that remains very much informed by those Cold War days.

"There is an emerging threat," says Whittington, 58. "China is spending an increasing sum of money on its military, including frontline aircraft." He also points to China's moves to secure energy supplies, a historically rich source of global conflict.

Full story at Forbes.com

Credit Suisse's Robert Spingarn

2008-05-28T20:29:00.000-07:00

Analyst: Robert Spingarn

Firm: Credit Suisse

Industry: Aerospace-Defense

Rank: 1

Robert Spingarn, aerospace and defense analyst at Credit Suisse (nyse: CS - news - people ), ranks first among all his peers on Wall Street in Forbes.com's 2008 survey of America's best stock analysts. Spingarn earns the award with solid judgment, as measured by our data partner Zacks Investment Research, in both forecasting earnings and picking stocks over a three-year period.

In the latter category, Spingarn benefited especially from bullish calls on BE Aerospace (nasdaq: BEAV - news - people ), Precision Castparts (nyse: PCP - news - people ) and Armor Holdings (nyse: AH - news - people ). From mid-May 2005, when Spingarn put positive ratings on the stocks, through the end of 2007, each clocked triple-digit gains. Click here for more on the methodology underlying our rankings.

Full story at Forbes.com

Rough Road Ahead For Highway Bill

2008-05-21T13:24:00.000-07:00

Washington, D.C. - As we've regularly reported on Forbes.com, the road building lobby in Washington makes a loud and skillful case that federal spending on highways--$41 billion for fiscal 2008--is inadequate and that the nation's infrastructure is facing a crisis.

This week, several hundred industry folks descended on Capitol Hill for their latest lobbying offensive.

"It's a severe situation," said David Bauer, senior vice president for government affairs at the American Road & Transportation Builders Association, Tuesday. "It's probably as severe as [any during] the 11 years that I've been at ARTBA."

Why so severe? One reason is the legislative outlook, as discussed by a panel of Democratic and Republican congressional staffers that ARTBA had summoned for a briefing Tuesday. The consensus among them: reauthorization of the nation's multi-year transportation spending law, enacted in 2005 with a $287 billion price tag, could prove much trickier than the last go round. A new administration and new environmental issues will complicate already contentious issues of funding America's infrastructure.

Full story at Forbes.com

Bears Bellowing In Forbes Stock Contest

2008-05-15T11:15:00.001-07:00

If your stock portfolio looks dinged up these days, take heart. The last few months have also been hard on the bulls participating in our annual stock-picking contest. From the end of October 2007 through Wednesday's market close, their 12 long calls are down an average 15%, compared with a 9% drop for the S&P 500.

The bears have done better. So far in the contest, four of their five short-sale ideas are in the red, showing an average price decline of 17%.

Full story at Forbes.com